Many investors who suffered losses in equities and mutual funds during the year may assume there is little reason to file an income tax return (ITR), especially if they have no taxable income otherwise.
However, tax experts caution that skipping ITR filing in a loss-making year can have long-term consequences. Investors who fail to file their returns within the prescribed deadline may lose the ability to carry forward those losses and use them to reduce taxes on future gains.
According to Balwant Jain, tax and investment expert, filing an ITR is particularly important when an investor has incurred capital losses and wants to carry them forward for adjustment against future gains.
Do investors with only capital losses need to file an ITR?
An individual whose income is below the basic exemption limit may not always be mandatorily required to file an ITR. However, if the person has incurred losses from shares, mutual funds or other capital assets and wishes to carry those losses forward, filing the return becomes important.
“To be eligible for carrying forward losses and setting them off against future gains, it is mandatory to file the income tax return before the due date,” Jain said.
Capital losses that are not fully adjusted in the same financial year can generally be carried forward and set off against eligible gains in subsequent years. But this benefit is available only if the return is filed within the prescribed deadline.
What happens if you miss the ITR deadline?
Missing the due date can have significant tax consequences for investors with unadjusted losses.
Jain explained that if an investor fails to file the return within the due date, the right to carry forward those losses is lost. As a result, future gains cannot be reduced by those past losses.
For instance, if an investor incurs a capital loss of ₹2 lakh in FY26 but does not file the ITR on time, and subsequently earns a capital gain of ₹5 lakh in the following year, tax would be payable on the entire ₹5 lakh gain.
Had the investor filed the return within the deadline, the ₹2 lakh loss could have been carried forward and adjusted against the future gain, reducing the taxable gain to ₹3 lakh.
Does the rule differ for equity, debt mutual funds or gold ETFs?
According to Jain, the requirement to file the return for carrying forward losses applies irrespective of the nature of the investment.
Whether the loss arises from equity shares, equity mutual funds, debt mutual funds, gold ETFs or other capital assets, the principle remains the same. If the loss is not fully adjusted during the year and the taxpayer wishes to carry it forward, the ITR must be filed within the due date.
Which ITR form should investors use?
The applicable ITR form depends on the nature of income.
For investors reporting capital gains or capital losses from shares and mutual funds, ITR-2 is generally the appropriate form.
However, if the taxpayer also has business income, such as from intraday trading activities that are treated as business income, ITR-3 may be required.
For how long can losses be carried forward?
Most capital losses can generally be carried forward for up to eight assessment years, subject to the conditions prescribed under the Income-tax Act.
However, speculative losses are treated differently.
Jain noted that speculative losses can typically be carried forward for only four years and can be adjusted only against speculative profits. They cannot be set off against other categories of income or gains.
Transactions where positions are squared off without actual delivery of shares are generally treated as speculative transactions under tax rules.
The bottom line
For investors, a loss-making year does not necessarily eliminate the need to file an ITR. In many cases, filing the return within the due date can preserve an important tax benefit by allowing losses to be carried forward and adjusted against future gains.
As a result, investors who have booked losses in shares, mutual funds or other capital assets may want to consider filing their returns even if they have little or no taxable income during the year.